Jaffe and Jordan want to use financial planning models to prepare a projected (pro forma) financial statement to determine the profitability and financial health of the business for next year, ending Dec 31, 2021. Use the pro forma financial statement below to answer the following questions:
PRO FORMA INCOME STATEMENT
Total operating revenues
Earnings before interest and taxes
Net income before taxes
Less taxes @ 23.8%
PRO FORMA BALANCE SHEET
Other current assets
Net Fixed Assets
Liabilities and Equities:
Total Liabilities & Equities
a. What is the estimated profit of the business for 2021?
b. Compute the following profitability ratiosand explain to Jaffe and Jordan whether the business looks profitable relative to the performance of the industry.
i. Profit margin
ii. Return on assets
iii. Return on equity
iv. calculate and explain operating cash flow
The industry ratios are as follows:
Return on assets
Return on equity
c. Assuming you project a 25% increase in operating revenue (sales) per year what will be the anticipated operating revenue in 2022?
d. If net income is projected to increase by 20% per year, what will be the profit margin in 2022?
e. What will be the estimated earnings per share (EPS) in 2022 if 1,000,000 shares are issued?